Ping An Falls on Acquisition Rejection Concerns: Hong Kong Mover

By Bloomberg News -
Jan 8, 2013

Ping An Insurance (Group) Co. (2318) fell
for a second day in Hong Kong trading after a media report that
Chinese regulators will reject Charoen Pokphand Group Co.’s
proposed purchase of a 15.6 percent stake in the insurer.

China’s second-largest insurer dropped as much as 2.3
percent and traded 1.4 percent lower at HK$67.20 as of 11 a.m.
local time. The China Insurance Regulatory Commission is set to
reject the $9.4 billion purchase from HSBC Holding Plc on
concerns whether the Thai company is the real buyer, the South
China Morning Post reported today, citing unidentified people.

“It would be in CP Group’s interest to find a way to fund
the deal, and prove it is indeed the real buyer of the Ping An
stake, not acting on behalf of other parties,” Deutsche Bank
AG’s Hong Kong-based analyst Esther Chwei wrote in a report
yesterday. “While the stake sale overhang may weigh on Ping
An’s share price in the near term, we believe this has limited
impact on Ping An’s fundamentals.”

HSBC said Dec. 5 it agreed to sell its stake in Ping An to
Thai billionaire Dhanin Chearavanont’s Charoen Pokphand as
Europe’s biggest bank by market value moves to revive profit and
boost capital. The Shenzhen-based insurer tumbled 4 percent, the
most in more than five months, in Hong Kong yesterday after a
Caixin Online report that China Development Bank Corp. halted
loans for the acquisition.

Explain More

Charoen Pokphand should “do more to explain where and how
it will get the money” for the purchase, especially if the
government-owned CDB isn’t providing the funding, the Post said,
citing one of the people. The deadline for the CIRC’s approval
is Feb. 1, the Post said.

Charoen Pokphand’s purchase will take place in two phases,
with the first to have been completed by Dec. 7, while CDB will
finance part of the deal through its Hong Kong branch, according
to HSBC.

Caixin reported last month that about two-thirds of the
first payment of the deal came from Chinese investors and that
Ping An’s management may have helped finance the Chinese
backers, which both the insurer and Charoen Pokphand denied at
the time.

Regulator Rules

Under CIRC rules, any purchase of a stake in an insurance
company in China has to be financed by internal funds and
external funds or financing are not allowed, according to the
Deutsche Bank report. As such, CP Group would not be able to use
CDB loans to finance their purchase of Ping An shares and hence,
the halting of CDB loan seems to be a natural outcome, Chwei
wrote in the report.

The deal is “in normal approval process,” Ping An’s Sheng
said in an e-mailed statement yesterday, without elaborating, in
response to an inquiry about the story on CDB’s withdrawal of
funding. Sheng earlier called Caixin’s report last month
“irresponsible.”